Editing Video game crash of 1983 (section)

== Long-term effects ==
[[File:Chart of the 1983 video game crash.svg|thumb|398x398px|Global revenue of the video game industry from 1978 to 1990.<ref name="vgmarket">{{cite web |last=Naramura |first=Yuki |date=January 23, 2019 |title=Peak Video Game? Top Analyst Sees Industry Slumping in 2019 |url=https://www.bloomberg.com/news/articles/2019-01-23/peak-video-game-top-analyst-sees-industry-slumping-in-2019 |url-access=subscription |url-status=live |archive-url=https://web.archive.org/web/20190715024243/http://www.bloomberg.com/news/articles/2019-01-23/peak-video-game-top-analyst-sees-industry-slumping-in-2019 |archive-date=July 15, 2019 |access-date=January 29, 2019 |work=[[Bloomberg L.P.]]}}</ref> The 1983 crash had rippling effects across the video game industry.]]
The crash in 1983 had the largest impact in the United States. It rippled through all sectors of the global video game market worldwide, though sales of video games still remained strong in Japan, Europe, and Canada from the beleaguered American companies.<ref name="ultimate chp17">{{cite book |title=Ultimate History of Video Games |first=Steven |last=Kent |page=190 |publisher=[[Three Rivers Press]] |isbn=0-7615-3643-4 |year=2001 | chapter=Chapter 17: We Tried to Keep from Laughing |url=https://archive.org/details/ultimatehistoryofvideogamesrevisited/ |chapter-url=https://archive.org/details/ultimatehistoryofvideogamesrevisited/page/n291/mode/2up}}</ref> It took several years for the U.S. industry to recover. The estimated {{USD|42 billion}} worldwide market in 1982, including arcade, console, and computer games, dropped to {{USD|14 billion}} by 1985. There was also a significant shift in the home video game market, away from consoles to personal computer software, between 1983 and 1985.<ref name="vgmarket"/>

1984 is when some of the longer-term effects started to take a toll on the video game console. Companies like [[Magnavox]] had decided to pull out of the video game console industry. The general consensus was that video games were just a fad that came as quickly as they left. But outside of North America the video game industry was doing very well. Home consoles were growing in popularity in Japan while home computers were surging across Europe.

United States sales fell from $3 billion to around $100 million in 1985. During the holiday season of 1985 [[Hiroshi Yamauchi]] decided to go to New York small markets about putting their products in their stores. [[Minoru Arakawa]] offered a money back guarantee from Nintendo that they would pay back for any stock that was left unsold. In total Nintendo sold 50,000 units, about half of the units they shipped to the US.<ref>{{Cite book|last=Wardyga|first=Brian|title=The Video Games Textbook|publisher=A K Peters/ CRC Press|year=2018|isbn=9781351172363|location=New York|pages=113}}</ref>

=== Japanese domination ===
The U.S. video game crash had two long-lasting results. The first result was that dominance in the home console market shifted from the United States to Japan. The crash did not directly affect the financial viability of the video game market in Japan, but it still came as a surprise there and created repercussions that changed that industry, and thus became known as the "Atari shock".<ref name=downmany>{{cite web |url=http://sh.diva-portal.org/smash/get/diva2:213024/FULLTEXT01.pdf |title=Down Many Times, but Still Playing the Game: Creative Destruction and Industry Crashes in the Early Video Game Industry 1971–1986 |url-status=live |archive-url=https://web.archive.org/web/20140501201148/http://sh.diva-portal.org/smash/get/diva2:213024/FULLTEXT01.pdf |archive-date=May 1, 2014 }}</ref>

Prior to the crash, Jonathan Greenberg of ''[[Forbes]]'' had predicted in early 1981 that Japanese companies would eventually dominate the North American video game industry, as American video game companies were increasingly licensing products from Japanese companies, who in turn were opening up North American branches.<ref name="Greenberg">{{Cite magazine|last=Greenberg|first=Jonathan|date=April 13, 1981|title=Japanese invaders: Move over Asteroids and Defenders, the next adversary in the electronic video game wars may be even tougher to beat|url=https://jonathangreenberg.com/wp-content/uploads/2018/01/Japanese-Invaders-April-13-1981.pdf|magazine=[[Forbes]]|volume=127|issue=8|pages=98, 102|access-date=December 2, 2021|archive-date=December 2, 2021|archive-url=https://web.archive.org/web/20211202200213/https://jonathangreenberg.com/wp-content/uploads/2018/01/Japanese-Invaders-April-13-1981.pdf|url-status=live}}</ref> By 1982–1983, Japanese manufacturers had captured a large share of the North American arcade market, which Gene Lipkin of [[Data East|Data East USA]] partly attributed to Japanese companies having more finances to invest in new ideas.<ref>{{cite magazine |title=Special Report: Gene Lipkin (Data East USA) |magazine=RePlay |date=January 1991 |volume=16 |issue=4 |page=92 |url=https://archive.org/details/re-play-volume-16-issue-no.-4-january-1991-600dpi/RePlay%20-%20Volume%2016%2C%20Issue%20No.%204%20-%20January%201991/page/92}}</ref>

As the crash was happening in the United States, Japan's game industry started to shift its attention from arcade games to home consoles. Within one month in 1983, two new home consoles were released in Japan: the Nintendo [[Family Computer]] (Famicom) and [[Sega]]'s [[SG-1000]] (which was later supplanted by the [[Master System]]) heralding the [[Third generation of video game consoles|third generation of home consoles]] retrospectively.<ref name="usgamer 1983">{{cite web | url = https://www.usgamer.net/articles/greatest-years-in-gaming-history-1983 | title = Greatest Years in Gaming History: 1983 | first = Jeremy | last = Parish | date = August 28, 2014 | access-date = September 13, 2019 | work = [[USGamer]] | archive-date = January 29, 2021 | archive-url = https://web.archive.org/web/20210129233449/https://www.usgamer.net/articles/greatest-years-in-gaming-history-1983 | url-status = live }}</ref> These two consoles were very popular, buoyed by an economic bubble in Japan. The units readily outsold Atari and Mattel's existing systems, and with both Atari and Mattel focusing on recovering domestic sales, the Japanese consoles effectively went uncontested over the next few years.<ref name="usgamer 1983"/> By 1986, three years after its introduction, 6.5 million Japanese homes – 19% of the population – owned a Famicom, and Nintendo began exporting it to the U.S., where the home console industry was only just recovering from the crash.{{r|takiff19860620}}

[[File:Nintendo Family Computer (Famicom).jpg|thumb|The Famicom's international debut was delayed by two years as a result of the crash.]]
The impact on the retail sector of the crash was the most formidable barrier that confronted Nintendo as it tried to market the Famicom in the United States. A planned deal with Atari to distribute the Famicom in North America fell apart in the wake of the crash, resulting in Nintendo handling the international release themselves two years later.<ref name="Ultimate History">{{cite book |last=Kent |first=Steven L. |author-link=Steven L. Kent |title=[[The Ultimate History of Video Games: The Story Behind the Craze that Touched our Lives and Changed the World]] |year=2001 |publisher=Prima Publishing |location=Roseville, California |isbn=0-7615-3643-4}}</ref>{{rp|283–285}} Additionally, retailer opposition to video games was directly responsible for causing Nintendo to brand its product the [[Nintendo Entertainment System]] (NES) rather than a "video game system", and using terms such as "control deck" and "Game Pak", as well as producing a toy robot called [[R.O.B.]] to convince toy retailers to allow it in their stores. Furthermore, the design for the NES used a front-loading cartridge slot to mimic how [[video cassette recorder]]s, popular at that time, were loaded, further pulling the NES away from previous console designs.<ref name="g4tv gamemakers">{{Cite episode |title=NES |url=http://g4tv.com/gamemakers/episodes/4844/NES.html |series=Icons |series-link=Icons (TV series) |network=[[G4 (U.S. TV channel)|G4]] |airdate=December 1, 2005 |season=4 |number=5010 |url-status=live |archive-url=https://web.archive.org/web/20121016233741/http://www.g4tv.com/gamemakers/episodes/4844/NES.html |archive-date=October 16, 2012 }}</ref><ref>{{cite web |url=http://archive.gamespy.com/articles/july03/25smartest/index22.shtml |title=25 Smartest Moments in Gaming |publisher=[[GameSpy]] |page=22 |date=July 21–25, 2003 |url-status=live |archive-url=https://web.archive.org/web/20120902124439/http://archive.gamespy.com/articles/july03/25smartest/index22.shtml |archive-date=September 2, 2012 }}</ref><ref>{{cite web | url = https://www.theverge.com/2015/10/18/9554885/nintendo-entertainment-system-famicom-history-masayuki-uemura | title = 7 things I learned from the designer of the NES | first = Sean | last = O'Kane | date = October 18, 2015 | access-date = September 21, 2018 | work = [[The Verge]] | archive-date = October 19, 2015 | archive-url = https://web.archive.org/web/20151019130146/http://www.theverge.com/2015/10/18/9554885/nintendo-entertainment-system-famicom-history-masayuki-uemura | url-status = live }}</ref>

{{Image frame|width=225 | align=right | content=[[File:NES-Console-Set.jpg|200px]]<br />[[File:Sega-Genesis-Mod1-Set.jpg|200px]]|caption=Following the crash, Nintendo became the market leader in America with the [[Nintendo Entertainment System]] (top), with Japanese companies dominating the market for years to come. The [[Sega Genesis]] (bottom) released in 1989 was the first real challenger to Nintendo's market dominance in North America.}}
By the time the U.S. video game market recovered in the late 1980s, the NES was by far the dominant console in the United States, leaving only a fraction of the market to Atari. By 1989, home video game sales in the United States had reached $5 billion, surpassing the 1982 peak of $3 billion during the previous generation. A large majority of the market was controlled by Nintendo; it sold more than 35 million units in the United States, exceeding the sales of other consoles and personal computers by a considerable margin.<ref>{{citation |title=Playing with Power in Movies, Television, and Video Games: From Muppet Babies to Teenage Mutant Ninja Turtles |first=Marsha |last=Kinder |publisher=[[University of California Press]] |year=1993 |isbn=0-520-07776-8 |page=90 |url=https://books.google.com/books?id=raDNu1lThHQC&pg=PA90 |access-date=April 26, 2011 |archive-date=February 9, 2023 |archive-url=https://web.archive.org/web/20230209133536/https://books.google.com/books?id=raDNu1lThHQC&pg=PA90 |url-status=live }}</ref> New Japanese companies entered the market to challenge Nintendo's success in the United States, NEC's [[TurboGrafx-16]] and the [[Sega Genesis]], both released in the U.S. in 1989. While the TurboGrafx underwhelmed in the market, the Genesis' release set the stage for a major rivalry between Sega and Nintendo in the early 1990s in the United States video game market.

=== Impact on third-party software development ===
A second, highly visible result of the crash was the advancement of measures to control [[third-party developer|third-party development]] of software. Using secrecy to combat [[industrial espionage]] had failed to stop rival companies from reverse engineering the Mattel and Atari systems and hiring away their trained game programmers. While Mattel and Coleco implemented lockout measures to control third-party development (the [[ColecoVision]] BIOS checked for a copyright string on power-up), the Atari 2600 was completely unprotected and once information on its hardware became available, little prevented anyone from making games for the system. Nintendo thus instituted a strict licensing policy for the NES that included equipping the cartridge and console with lockout chips, which were region-specific, and had to match in order for a game to work. In addition to preventing the use of unlicensed games, it also was designed to combat [[software piracy]], rarely a problem in North America or Western Europe, but rampant in East Asia. The concepts of such a control system remain in use on every major video game console produced today, even with fewer cartridge-based consoles on the market than in the 8/16-bit era. Replacing the security chips in most modern consoles are specially encoded [[optical disc]]s that [[Copy protection#Video game console systems|cannot be copied]] by most users and can only be read by a particular console under normal circumstances. [[Accolade, Inc.|Accolade]] achieved a technical victory in one court case against [[Sega]], challenging this control, even though it ultimately yielded and signed the Sega licensing agreement. Several publishers, notably [[Tengen (company)|Tengen]] (Atari Games), [[Color Dreams]], and [[Camerica]], challenged Nintendo's control system during the 8-bit era by producing unlicensed NES games.

Initially, Nintendo was the only developer for the Famicom. Under pressure from [[Namco]] and [[Hudson Soft]], it opened the Famicom to third-party development, but instituted a license fee of 30% per game cartridge for these third-parties to develop games, a system used by console manufacturers to this day.<ref>{{cite web | url = https://www.bloomberg.com/news/articles/2020-08-19/epic-games-fortnite-battle-with-apple-and-google-can-be-traced-to-nintendo-tax | title = Epic's Battle With Apple and Google Actually Dates Back to Pac-Man | first1 = Takahashi | last1 = Mochizuki | first2 = Vlad | last2 = Savov | date = August 25, 2020 | access-date = August 25, 2020 | work = [[Bloomberg News]] | url-access = subscription | archive-date = November 6, 2021 | archive-url = https://web.archive.org/web/20211106025128/https://www.bloomberg.com/news/articles/2020-08-19/epic-games-fortnite-battle-with-apple-and-google-can-be-traced-to-nintendo-tax | url-status = live }}</ref> Nintendo maintained strict manufacturing control and requiring payment in full before manufacturing. Cartridges could not be returned to Nintendo, so publishers assumed all the financial risk of selling all units ordered. Nintendo limited most third-party publishers to only five games per year on its systems (some companies tried to get around this by creating additional company labels like [[Konami]]'s [[Ultra Games]] label). Nintendo ultimately dropped this rule by 1993, after the release of the successor [[Super Nintendo Entertainment System]].<ref>{{cite web | url = https://kotaku.com/5930361/how-konami-cheated-to-get-around-a-silly-nintendo-rule | title = Konami's Cheat to Get Around a Silly Nintendo Rule | first = Luke | last = Plunkett | date = July 21, 2012 | access-date = September 21, 2018 | work = [[Kotaku]] | archive-date = September 21, 2018 | archive-url = https://web.archive.org/web/20180921225906/https://kotaku.com/5930361/how-konami-cheated-to-get-around-a-silly-nintendo-rule | url-status = live }}</ref> Nintendo's strong-armed oversight of Famicom cartridge manufacturing led to both legitimate and bootleg unlicensed cartridges to be made in the Asian regions. Outside of Japan, Nintendo placed its [[Nintendo Seal of Quality]] on all licensed games released for the system to try to promote authenticity and detract from bootleg sales, but failed to make significant traction to stalling these sales.<ref name="odeonnel nes10">{{cite journal | title = The Nintendo Entertainment System and the 10NES Chip: Carving the Video Game Industry in Silicon | first = Casey | last = O'Donnell | date = 2011 | journal = [[Games and Culture]] | volume = 6 | issue = 1 | pages = 83–100 | doi = 10.1177/1555412010377319 | s2cid = 53358125 }}</ref>

As Nintendo prepared to release the Famicom in the United States, it wanted to avoid both the bootleg problem it had in Asia as well as the mistakes that led up to the 1983 crash. The company created the proprietary [[10NES]] system, a [[lockout chip]] which was designed to prevent cartridges made without the chip from being played on the NES. The 10NES lockout was not perfect, as later in the NES' lifecycle methods were found to bypass it, but it did sufficiently allow Nintendo to strengthen its publishing control to avoid the mistakes Atari had made and initially prevent bootleg cartridges in the Western markets.<ref>{{cite web | url = https://arstechnica.com/gaming/2013/07/time-to-feel-old-inside-the-nes-on-its-30th-birthday/ | title = The NES turns 30: How it began, worked, and saved an industry | first = Andrew | last = Cunningham | date = July 15, 2013 | access-date = September 21, 2018 | work = [[Ars Technica]] | archive-date = July 22, 2021 | archive-url = https://web.archive.org/web/20210722154751/https://arstechnica.com/gaming/2013/07/time-to-feel-old-inside-the-nes-on-its-30th-birthday/ | url-status = live }}</ref> These strict licensing measures backfired somewhat after Nintendo was accused of [[Competition law|monopolistic]] behavior.<ref>{{cite web |author1=U.S. Court of Appeals |author2=Federal Circuit |year=1992 |title=Atari Games Corp. v. Nintendo of America Inc. |work=Digital Law Online |url=http://digital-law-online.info/cases/24PQ2D1015.htm |access-date=March 30, 2005 |url-status=live |archive-url=https://web.archive.org/web/20110808062812/http://digital-law-online.info/cases/24PQ2D1015.htm |archive-date=August 8, 2011 }}</ref> In the long run, this pushed many western third-party publishers such as [[Electronic Arts]] away from Nintendo consoles and supported competing consoles such as the Sega Genesis or [[PlayStation (console)|Sony PlayStation]]. Most of the Nintendo platform-control measures were adopted by later console manufacturers such as Sega, Sony, and Microsoft, although not as stringently.

=== Computer game growth ===
With waning console interests in the United States, the [[computer game]] market was able to gain a strong foothold in 1983 and beyond.<ref name="usgamer 1983"/> Developers that had been primarily in the console games space, like Activision, turned their attention to developing computer game titles to stay viable.<ref name="usgamer 1983"/> Newer companies also were founded to capture the growing interest in the computer games space with novel elements that borrowed from console games, as well as taking advantage of low-cost dial-up [[modem]]s that allowed for multiplayer capabilities.<ref name="usgamer 1983"/> The computer game market grew between 1983 and 1984, overtaking the console market, but overall video game revenue had declined significantly due to the considerable decline of the console market as well as the arcade market to an extent.<ref name="vgmarket"/> The home computer industry, however, experienced a downturn in mid-1984,<ref>{{cite news |last1=Sanger |first1=David E. |title=Expected boom in home computer market fizzles |url=https://news.google.com/newspapers?nid=1129&dat=19840605&id=W4NIAAAAIBAJ&sjid=HW4DAAAAIBAJ&pg=7089,693646 |access-date=December 2, 2021 |work=[[Pittsburgh Post-Gazette]] |date=June 5, 1984 |archive-date=December 2, 2021 |archive-url=https://web.archive.org/web/20211202113001/https://news.google.com/newspapers?nid=1129&dat=19840605&id=W4NIAAAAIBAJ&sjid=HW4DAAAAIBAJ&pg=7089,693646 |url-status=live }}</ref> with global computer game sales declining in 1985 to a certain extent.<ref name="vgmarket"/>

Microcomputers dominated the European market throughout the 1980s and with domestic production for those formats thriving over the same period, there was minimal trans-Atlantic ripple from American game production and trends.<ref name="ign crash reasons">{{cite web |last=Oxford |first=Nadia |date=January 18, 2012 |title=Ten Facts about the Great Video Game Crash of '83 |url=https://www.ign.com/articles/2011/09/21/ten-facts-about-the-great-video-game-crash-of-83 |url-status=live |archive-url=https://web.archive.org/web/20210128072326/https://www.ign.com/articles/2011/09/21/ten-facts-about-the-great-video-game-crash-of-83 |archive-date=January 28, 2021 |access-date=September 11, 2020 |work=[[IGN]]}}</ref> Partly as a distant knock-on effect of the crash and partly due to the continuing quality of homegrown computer and microcomputer games, consoles did not achieve a dominant position in some European markets until the early 1990s.<ref name="MMC" /> [[Video games in the United Kingdom|In the United Kingdom]], there was a short-lived home console market between 1980 and 1982, but the 1983 crash led to the decline of consoles in the UK, which was offset by the rise of [[LCD games]] in 1983 and then the rise of computer games in 1984. It was not until the late 1980s with the arrival of the Master System and NES that the home console market recovered in the UK. Computer games remained the dominant sector of the UK home video game market up until they were surpassed by Sega and Nintendo consoles in 1991.<ref name="MMC">{{Cite book|title=Video Games: A Report on the Supply of Video Games in the UK|publisher=[[Monopolies and Mergers Commission]] (MMC), [[H.M. Stationery Office]]|date=April 1995|isbn=978-0-10-127812-6|location=United Kingdom|pages=[https://i.imgur.com/CLYiKIp.jpg 66] to [https://i.imgur.com/vR9vtPX.jpg 68]|chapter=Market size and market shares}}</ref>